The EU Commission gave in to pressure from many member states and drew up a discussion paper on a gas price cap – in time for the meeting of EU energy ministers this Friday in Brussels. The authority is skeptical about such initiatives, just like the federal government. Because setting lower prices could make it more difficult to steer much-needed tanker shipments of liquefied natural gas to Europe. At the same time, consumption could increase. Nevertheless, the commission sent a 16-page analysis to the 27 capitals on Wednesday.
Only on Tuesday did 15 EU governments write a letter to Energy Commissioner Kadri Simson, demanding that she present the first proposals for such a cap at the ministerial meeting on Friday. The discussion paper that Süddeutsche Zeitung does list some options, but it is questionable whether these go far enough for the proponents. The Commission cites negotiating price reductions with gas suppliers such as Norway, the USA or Qatar and establishing long-term energy partnerships to their mutual advantage as the preferred route. Member States could also combine their bargaining power and jointly act as buyers.
In addition, the Commission suggests developing a different price index for liquefied natural gas deliveries. The TTF index used to date primarily reflects the market for pipeline gas and, in the authority’s opinion, does not correctly reflect the situation with liquefied natural gas.
The Commission paper only proposes a real price cap for imports with regard to imports from Russia. The initiative would ban imports whose price exceeds a limit. This should reduce Russia’s revenues and ease the burden on Europe’s consumers. The Commission admits that the supplier Gazprom could respond to this step with an immediate supply freeze. But thanks to full storage facilities, the EU as a whole would be able to cope, at least if the winter didn’t get too cold, the document says. In any case, Russia only accounts for nine percent of gas imports. At a meeting of energy ministers earlier this month, however, there was strong opposition from some governments, such as Hungary, to such a cap on Russian imports.
Countries could cap the price of gas power plants
In addition, the Commission brings up the possibility of capping the gas price that power plants have to pay. Then gas-fired power plants could produce electricity more cheaply and the price of electricity would fall. However, governments would have to pay the difference between the real price of gas and the lower set price at which power plants buy the raw material. The governments could use the income that comes from skimming off the profits of cheap power plants, the paper says. Finally, two weeks ago, the Commission presented a draft law that would force member states to set an upper price limit of 180 euros per megawatt hour for suppliers of nuclear, lignite and green electricity. The exchange price for electricity is significantly higher – the difference should go to the states.
Energy ministers could approve this EU law at Friday’s meeting. When it comes to the gas price cap, on the other hand, long discussions will certainly be necessary.